Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)General outline and financial impact
Termination Payments Surcharge (Assessment and Collection) Bill
This Bill forms part of a package of legislation designed to give a legislative framework for the introduction of a superannuation contributions surcharge for high income earners. The other components of the legislative package are: the Termination Payments Surcharge Imposition Bill 1997, the Superannuation Contributions Surcharge (Assessment and Collection Bill) 1997, the Superannuation Contributions Surcharge Imposition Bill 1997 and the Superannuation Contributions Surcharge (Consequential Amendments) Bill 1997.
Date of effect: 20 August 1996
Proposal announced: The introduction of the superannuation contributions surcharge for high income earners was announced by the Government in the 1996-97 Budget and was incorporated in the Treasurer's Press Release No. 87 of 20August1996 entitled "Superannuation Reform."
Financial impact: It is estimated that the revenue impact of the package of legislation giving effect to the surcharge will be $480 million in 1997-98, $470 million in 1998-99 and $530 million in 1999-2000.
Compliance cost impact:
Full details of the compliance costs associated with the surcharge measures are contained in the compliance cost statement in the Explanatory Memorandum to the Superannuation Contributions Surcharge (Assessment and Collection) Bill 1997.
Chapter 1 Preliminary
Overview
1.1 Part 1 of the Bill sets out the preliminary details of the Act.
1.2 The purpose of the provisions is to:
- •
- establish the title, scope and commencement date of the Act; and
- •
- provide an outline of the purpose and operation of the Act.
Explanation of the provisions
Title and Commencement of the Act
1.3 When the Bill is enacted it will be called the Termination Payments Surcharge (Assessment and Collection) Act 1997. [Clause1]
1.4 The Act is to commence on the day it receives the Royal Assent. [Clause2]
1.5 The Act binds the Crown in the Commonwealth, the Australian Capital Territory, the Northern Territory and all the external Territories. The Crown cannot be prosecuted for any offences under this Act. The application of the Act in relation to Australia's external Territories is limited in its application to entities that are not exempt from income tax for the purposes of Division 1A of Part III of the Income Tax Assessment Act 1936 (refer to subclause 7(3) of the Bill). [Clauses3 and4]
1.6 The object of the Act is to provide for the assessment and collection of the termination payments surcharge payable on payments commonly known as 'golden handshakes' that are made to high income earners on the termination of employment. [Clause 5]
1.7 Clause 6 highlights significant features of the operation of the Act.
Chapter 2 Liability to surcharge
Overview
2.1 This chapter explains when liability to the surcharge will arise and who must pay the liability. The provisions discussed in this chapter are contained in Part 2 of the Bill.
2.2 The purpose of the provisions is to:
- •
- identify the amounts which will be subject to the surcharge;
- •
- explain when the surcharge is payable;
- •
- identify who will be liable to pay the surcharge; and
- •
- outline transitional arrangements that affect the amount subject to the surcharge.
Explanation of the provisions
What amounts will surcharge be paid on?
2.3 The surcharge is imposed on termination payments made to a taxpayer. [Clause8(1)]
2.4 A termination payment is the retained amount of an ETP (reduced by the post-June 1994 invalidity component) that:
- •
- is paid after 7.30 pm by legal time in the Australian Capital Territory on 20 August 1996 (Budget night); and
- •
- is an ETP under paragraph(a) of the definition of eligible termination payment in subsection27A(1) of the Income Tax Assessment Act. Generally, a paragraph(a) ETP is a lump sum payment received from an employer on termination of employment and are commonly referred to as 'golden handshakes'.
[Clause7]
2.5 The tax free amount of bona fide redundancy payments and approved early retirement scheme payments are not termination payments which are subject to the surcharge because they are not ETPs (see paragraph(ja) of the definition of eligible termination payment in subsection27A(1) of the Income Tax Assessment Act).
2.6 Transitional arrangements that affect the amount subject to the surcharge are explained in paragraphs 2.15-2.19.
2.7 Surcharge is payable only if a taxpayer's adjusted taxable income exceeds the surcharge threshold. [Subclause8(2)]
2.8 A taxpayer's adjusted taxable income for a financial year is the sum of:
- •
- the taxpayer's taxable income of that financial year; and
- •
- the taxpayer's surchargeable contributions for that financial year unless those contributions are included in his or her taxable income because they have been paid out as an ETP.
[Clause31; Clause 41 of the Superannuation Contributions (Assessment and Collection) Bill-definition of adjusted taxable income]
2.9 The taxpayer's taxable income is the total of his or her assessable income reduced by allowable deductions as reported by the taxpayer on his or her tax return for a year. The taxpayer's surchargeable contributions are added to ordinary taxable income to produce the adjusted taxable income.
2.10 The surcharge threshold for the 1996-97 financial year is $70,000. [Subclause10(1)] The surcharge threshold will be indexed in subsequent financial years by movements in full-time adult average weekly ordinary time earnings (AWOTE). [Subclauses10(2) to10(7)] This will ensure that the surcharge threshold amount will increase in line with movements in salary and wages and will retain its real value over time.
2.11 Madeline has taxable income for the 1996-97 financial year of $45,000 (including a termination payment of $10,000) and surchargeable contributions made by her employer (after 20August1996) of $10,000. Madeline's adjusted taxable income is $55,000. Madeline would not be liable to surcharge because her adjusted taxable income was below $70,000.
2.12 Ravi has taxable income for the 1996-97 financial year of $95,000 (including a termination payment of $25,000) and surchargeable contributions made by his employer (after 20August1996) of $5,000. Ravi's adjusted taxable income is $100,000. Ravi would be liable to surcharge because his adjusted taxable income was more than $70,000.
Who is liable to pay the surcharge?
2.13 The taxpayer is liable to pay the surcharge. [Clause 8(4)]
Who is exempt from the surcharge?
2.14 Surcharge is not payable by genuine residents of Norfolk Island as identified in Division1A of PartIII of the Income Tax Assessment Act. That Division exempts such residents from income tax. It is consistent to also exempt such residents from the surcharge. [Subclause8(3)]
What transitional arrangements affect the amount subject to the surcharge?
2.15 Transitional arrangements apply to reduce the amount of a termination payment that is subject to the surcharge. Different transitional rules apply to:
- •
- termination payments received between 20 August 1996 and 19 August 2001 (inclusive); and
- •
- termination payments received on or after 20 August 2001.
Termination payments received between 20 August 1996 and 19 August 2001 (inclusive)
2.16 If a taxpayer receives a termination payment between 20 August 1996 and 19 August 2001 (inclusive), the amount of the termination payment that will be subject to the surcharge will be worked out using the formula:
Post-20 August 1996 period/Total period x Termination payment
where:
Post-20 August 1996 period is the number of days in the period of the taxpayer's employment with the employer who paid the termination payment that occurred after 20August1996; and
Total period is the total number of days in the period of the taxpayer's employment with the employer who paid the termination payment.
[Subclause9(1)]
2.17 Francesca receives a termination payment of $30,000 from her employer on 30November1997. She has been working with that employer since 1December1990. As Francesca's adjusted taxable income is $92,000, she will be liable to the surcharge. The amount of Francesca's termination payment that will be subject to the surcharge is:
467 days/2557 days x $30 000 = $5 479
Termination payments received on or after 20 August 2001
2.18 If a taxpayer receives a termination payment on or after 20August2001, the whole amount of the termination payment will be subject to the surcharge unless the taxpayer had entered into a written agreement with his or her employer before 7.30 pm by legal time in the Australian Capital Territory on 20 August 1996 specifically recognising the employee's entitlement to be paid an ETP on termination of employment.
2.19 If the employee has entered into such an agreement the amount of the termination payment that will be subject to the surcharge will be worked out using the formula:
Post - 20 August 1996 period/Total period x Termination payment
where:
Post - 20 August 1996 period is the number of days in the period of the taxpayer's employment with the employer who paid the termination payment that occurred after 20August1996; and
Total period is the total number of days in the period of the taxpayer's employment with the employer who paid the termination payment.
[Subclause9(2)]
Chapter 3 Assessment and collection of surcharge
Overview
3.1 Part 3 of the Bill deals with the assessment and collection of the surcharge.
3.2 The purpose of the provisions is to:
- •
- establish how and when assessments of the surcharge are to be made;
- •
- outline the conditions under which amended assessments of the surcharge may be made and when interest will be payable;
- •
- allow for objections against assessments of surcharge; and
- •
- provide for the use of tax file numbers to facilitate the effective administration of the Act.
Explanation of the provisions
How is liability to the surcharge assessed?
3.3 To make an assessment of surcharge the Commissioner must:
- •
- calculate a taxpayer's termination payments;
- •
- calculate a taxpayer's adjusted taxable income; and
- •
- if the taxpayer's adjusted taxable income is more than the surcharge threshold:
- •
- calculate the rate of surcharge; and
- •
- make an assessment to the taxpayer of the surcharge payable.
[Subclause 11(1)]
3.4 A copy of the assessment must be given to the taxpayer. [Subclause11(4)]
3.5 If the Commissioner calculates that no surcharge is payable by a taxpayer for a financial year, the calculation is taken to be an assessment of a nil amount of surcharge. [Subclause11(5)]
What information is included on an assessment?
3.6 A surcharge assessment must explain the calculations on which the assessment is based, including details of:
- •
- the taxpayer's adjusted taxable income for the financial year;
- •
- the termination payments;
- •
- the amount of surcharge; and
- •
- the day on which surcharge is payable.
[Subclause11(3)]
When is liability to the surcharge assessed?
3.7 The Commissioner is able to make an assessment of surcharge at any time. However, usually an assessment will be made in conjunction with the taxpayer's income tax assessment.
3.8 Surcharge is payable within 1month after the day on which the assessment is made. [Subclause11(2)]
Under what circumstances will an assessment be amended?
3.9 The Bill provides for the Commissioner to amend assessments of surcharge where a taxpayer's circumstances have changed, to either increase or decrease a surcharge liability. Changes in a taxpayer's circumstances that would lead to an amended assessment include a change in the taxpayer's taxable income or a change in the amount of the taxpayer's termination payment. [Subclauses12(1) and (2)]
Payment of additional surcharge
3.10 Where an amendment increases the liability to the surcharge the additional amount must be paid within 1 month of the amended assessment. [Subclause12(3)]
3.11 If the Commissioner makes an amendment reducing the surcharge which has been paid by the taxpayer, the amount by which the surcharge is reduced will be repaid to the taxpayer. [Subclause12(4)]
3.12 Where an amended assessment increases liability to the surcharge the taxpayer is liable to pay interest to the Commonwealth on the increased liability. [Subclause 13(1)]
What amount of interest is payable?
3.13 Interest is payable from the 15th of June of the financial year to which the assessment relates until the date of the amended assessment. Interest is to be paid at rates provided for under section 214A of the Income Tax Assessment Act. [Subclause13(2)]
3.14 If the Commissioner has calculated that no surcharge is payable by a taxpayer for a financial year and subsequently makes an assessment of surcharge, the assessment is taken to be an amended assessment. [Subclause13(3)]
3.15 Interest is not payable where the amount is less than 50 cents. [Subclause13(4)]
Commissioner to notify of interest payable
3.16 The Commissioner must notify the person liable to the interest of the period for which interest is payable, the amount of the interest and the due date for payment of the interest. [Subclause13(5)]
Commissioner may remit interest
3.17 The Commissioner may also remit the whole or any part of the interest payable. A decision of the Commissioner not to remit interest is reviewable by the AAT (see paragraph4.15). [Subclause13(6)]
Objections against assessments
Who may object to an assessment?
3.18 Where a taxpayer is dissatisfied with a surcharge assessment the taxpayer may object to the calculation in the manner set out in Part IVC of the Taxation Administration Act 1953. [Clause 15]
When must the objection be made?
3.19 Under the Taxation Administration Act a taxpayer generally has 60 days from receiving a notice of assessment to object against the assessment. An objection may be lodged after the 60 day period but must be accompanied by a request for an extension of time (section 14ZW of the Taxation Administration Act). The Commissioner must then decide whether to consider the objection as lodged on time. A decision not to extend the lodgement time is reviewable by the Administrative Appeals Tribunal (AAT) (section 14ZX).
How must the objection be made?
3.20 The objection must be in writing, and must fully and in detail state the grounds that the taxpayer is relying upon (section 14ZU). If an amendment is made to an assessment the taxpayer can only object to the alterations (section 14ZV).
How must the Commissioner respond to an objection?
3.21 If an objection is lodged within time, the Commissioner must decide whether to allow in full, allow in part, or disallow the objection (section 14ZY). A person who has lodged an objection may give the Commissioner a notice requiring the Commissioner to make a decision, where the Commissioner has failed to make a decision on the objection by the later of:
- •
- 60 days after the objection was lodged with the Commissioner;
- •
- 60 days after the day on which the Commissioner decides to agree to accept an objection lodged out of time; or
- •
- if the Commissioner has requested further information relating to the objection - 60 days after the receipt of that information.
3.22 If the Commissioner does not make a decision within 60 days of receiving the notice, the Commissioner is deemed to have disallowed the objection and is required to serve a notice of the objection decision on the person (section 14ZYA).
Review by the AAT or Federal Court
3.23 If the objection is not allowed in full the taxpayer has the option to apply either to the AAT or the Federal Court depending upon the circumstances of the case (section 14ZZ).
3.24 An application to the AAT or Federal Court must be made within 60 days of receiving the notice of the Commissioner's decision. Once again the application must be in writing and set out the grounds for the application (sections 14ZZC and 14ZZN). The applicant is then limited to these grounds of objection, unless the court or tribunal orders otherwise. The applicant also has the burden of proof (sections 14ZZK and 14ZZO).
Will the surcharge still be payable while objection being made?
3.25 Despite appeal and review proceedings pending, any termination payments surcharge owing is still payable as if there was no review or appeal being undertaken (sections 14ZZM and 14ZZR).
3.26 The Commissioner may use TFNs that have been provided to the Commissioner for any other purpose. [Clause 14] This is to facilitate the efficient operation of the surcharge, whilst ensuring that TFNs have still been provided on a voluntary basis.
Chapter 4 Recovery of unpaid surcharge or advanced instalments
Overview
4.1 Part 4 of the Bill deals with a number of issues relating to the payment of a surcharge liability.
4.2 The purpose of the provisions in Part 4 of the Bill is to provide for:
- •
- late payment penalties for surcharge;
- •
- recovery of unpaid amounts of surcharge, interest and late payment penalty;
- •
- application of payments to debts; and
- •
- review of decisions not to remit late payment penalties and interest.
Explanation of the provisions
When will a late payment penalty be applied?
4.3 Where there is a liability to surcharge and the debt has not been paid a penalty will apply. The penalty will arise if any surcharge remains unpaid after the day on which the surcharge becomes due and payable. [Subclause16(1)]
How will the penalty be calculated?
4.4 Where a late payment penalty arises the penalty starts to accrue from the day after the due date for payment of the surcharge on a 'calendar month' basis (calendar month is defined in section 22 of the Acts Interpretation Act 1901). [Subclause16(1)]
4.5 The amount of penalty is worked out on a monthly basis in the following way:
Unpaid amount x 0.2/12
[Subclauses16(1) and (2)]
Due date for payment of penalty
4.6 The penalty is due and payable at the end of that month. [Subclause16(3)]
Commissioner may remit late payment penalty
4.7 The Commissioner may remit the whole or part of a late payment penalty. A decision of the Commissioner not to remit interest is reviewable by the AAT (see paragraph4.15). [Subclause 16(4)]
4.8 The following amounts may be recovered by the Commonwealth as debts due to the Commonwealth:
- •
- surcharge due and payable;
- •
- interest due and payable; and
- •
- late payment penalty due and payable.
[Clause 17]
4.9 Amounts due and payable to the Commonwealth are payable to the Commissioner. [Clause 18]
4.10 Where a taxpayer owes two or more debts to the Commonwealth under this Act and they pay part of the total amount of the debt, the Commissioner may apply the payment in partial discharge of the debt and the Commonwealth may recover the remaining amount of the debt. [Clause 19]
What decisions can be reviewed?
4.11 The taxpayer may request the Commissioner to review:
- •
- a decision not to remit the whole or any part of interest; and
- •
- a decision not to remit the whole or any part of late payment penalty.
[Subclause20(1)]
When must the request be made?
4.12 The request must be made within 21 days, or within such further period as the Commissioner allows, of the Commissioner's notice of the decision. [Subclause 20(1)]
4.13 The person must make a written request setting out reasons why they wish the decision to be reviewed. [Subclause 20(2)]
How must the Commissioner respond to a request?
4.14 The Commissioner must reconsider the request and either confirm, revoke or vary the decision. Where the Commissioner finalises the decision the Commissioner must provide written notification of that decision to the taxpayer. Where such reconsideration is not completed by the Commissioner within 21 days the Commissioner is taken to have confirmed the decision. [Subclauses 20(3), (4) and (5)]
4.15 Where the taxpayer is still not satisfied with the Commissioner's decision they may request the matter be referred to the Administrative Appeals Tribunal. Application for review must be made within 28 days of the Commissioner's decision. The hearing of a proceeding before the Administrative Appeals Tribunal is to take place in private and the Tribunal may give directions in accordance with the Administrative Appeals Tribunal Act 1975. [Subclauses 20(6), (7), (8) and (9)]
Overview
5.1 Part 5 of the Bill deals the administration of the Act.
5.2 Part 5 of the Bill makes provision for:
- •
- the general administration of the Act;
- •
- an annual report to be given to Parliament on the operation of the Act; and
- •
- the protection of information obtained under the Act.
Explanation of the provisions
5.3 The Commissioner of Taxation is to be responsible for the general administration of the Act. These responsibilities include assessment of liability to the surcharge, collection of the surcharge payable, and ensuring compliance with the provisions of the Act. [Clause 21]
5.4 The Commissioner will be required to provide an annual report on the working of the Act to the Treasurer for presentation to Parliament. [Clause 22]
5.5 The Bill imposes an obligation of secrecy on persons who, in the course of their duties relating to the administration of the Bill, acquire information on the affairs of another person. [Clause23] The secrecy provisions are consistent with those in other Commonwealth Acts administered by the Commissioner.
5.6 The secrecy provisions apply to a person who is or has been:
- •
- the Commissioner, a Second Commissioner or a Deputy Commissioner; or
- •
- an officer or employee of the Australian Taxation Office (ATO); or
- •
- otherwise appointed or employed by, or a provider of services for, the Commonwealth.
[Subclauses23(1) and (2)]
5.7 A person is not allowed to make a record of, or divulge or communicate protected information about another person except in the course of their duties or if it is necessary to do so for the purpose of giving effect to the provisions of the Bill. This obligation extends to divulging or communicating protected information to a Minister or a court. [Subclauses 23(2), (4) and (5)]
5.8 However, the Commissioner, a Second Commissioner or a Deputy Commissioner or a person authorised by them is not prevented from communicating or divulging protected information to a person to enable that person to perform duties for the purposes of an Act (including associated regulations) of which the Commissioner has the general administration. [Subclause 23(3)]
5.9 Similarly, nothing in an Act administered by the Commissioner can prohibit the Commissioner, a Second Commissioner, a Deputy Commissioner or a person authorised by them from communicating or divulging any information to a person performing duties under this Act, or to disclose information or comments to a court where it is for the purpose of this Act. [Subclauses23(6) and (7)]
5.10 A person must make a written oath or declaration to maintain secrecy in accordance with the secrecy provisions of this Bill, if it is required by the Commissioner, a Second Commissioner or a Deputy Commissioner. [Subclause 23(8)]
5.11 The penalty for failure to adhere to the secrecy provisions is imprisonment for two years. [Subclause 23(2)]
Overview
6.1 This chapter deals with a number of miscellaneous provisions contained in Part 6 of the Bill.
6.2 These provisions set out a number of standard requirements for:
- •
- evidence;
- •
- access to premises;
- •
- obtaining information and evidence;
- •
- record keeping requirements;
- •
- application of the criminal code; and
- •
- regulations.
Explanation of the provisions
6.3 The Commissioner may authorise a person who is an officer or employee under the Public Service Act 1922 to be an authorised officer for the purposes of this Act. [Clause24]
6.4 The Bill specifies the evidentiary value of certain documents and copies of documents. This is to ensure that the only avenue of appeal is to dispute the amount of the liability for the termination payments surcharge.
6.5 The documents covered include those issued or given, or purporting to be issued or given, under the hand of the Commissioner, a Second Commissioner or a Deputy Commissioner. The rules applying to such documents are as follows:
- •
- the production of an assessment or document purporting to be a copy of an assessment is conclusive evidence of the due making of the assessment and that the amounts and all particulars of the assessment are correct, except in proceedings before a tribunal or court; [Subclause25(1)]
- •
- the production of a document purporting to be a copy of a document issued or given by the Commissioner, a Second Commissioner or a Deputy Commissioner is prima facie evidence of the original document being issued or given; [Subclause 25(2)]
- •
- the production of a document purporting to be a copy of, or extract from an assessment is evidence of the matters in the document to the same extent as the original document had it been produced; and [Subclause 25(3)]
- •
- the production of a signed certificate certifying an amount of superannuation surcharge, interest or late payment penalty payable at the date of the certificate is prima facie evidence of the matter stated in the certificate. [Subclause 25(4)]
Access to premises and obtaining information and evidence
6.6 The Bill contains provisions dealing with access to premises and information gathering powers. Similar provisions are found in other Acts administered by the Commissioner - for example, sections 263 and 264 of the Income Tax Assessment Act. The provisions are necessary for the Commissioner to ensure compliance with the Act. [Clauses 26 and 27]
6.7 The access and information gathering powers may be used, for example, to ensure that an employer has reported the full amount of a termination payment made to a taxpayer. In such a case, it may be necessary for the Commissioner to inspect documents which may not otherwise be available for inspection if access and information gathering powers were not included in the Bill.
6.8 Under these powers, an authorised officer must be given entry at any reasonable time, to land or premises. The officer must also be given full and free access to all books, records and other documents held by any person, and right to inspect, examine or make copies therefrom. [Subclause 26(1)] An authorised officer is an officer or employee within the meaning of the (Commonwealth) Public Service Act 1922 who has been authorised in writing by the Commissioner of Taxation to carry out certain duties.
6.9 The officer is not entitled to remain on the land or premises unless a written authority signed by the Commissioner is produced at the request of the occupier. [Subclause 26(2)]
6.10 The occupier of land or premises entered or proposed to be entered by an authorised officer is required to provide the officer with all reasonable facilities and assistance to carry out official duties. [Subclause 26(3)] For example, an authorised officer will be entitled to reasonable use of photocopying, telephone, fax and light and power facilities and of work space and facilities to extract relevant information stored on computer. In addition, the officer will be entitled to reasonable assistance in the form of, for example, advice as to where relevant documents are located and access to areas where such documents are located.
6.11 The maximum penalty on conviction for failure to comply with the access to premises provisions is a fine of 10 penalty units. [Subclause 26(3)]
6.12 The Commissioner will also be able to require, by notice in writing, any person to:
- •
- give information on oath or otherwise;
- •
- attend before the Commissioner and answer questions on oath or otherwise; or
- •
- produce any documents in the custody or under the control of that person. [Subclauses 27(1), (2) and (3)]
6.13 The regulations must prescribe scales of expenses to be allowed to persons required to attend before the Commissioner. [Subclause 27(4)]
6.14 The Bill imposes certain record keeping requirements on employers. [Clause 28] Employers must keep records of all termination payments made by the employer. [Subclause 28(1)]
6.15 The records must be kept in writing in the English language or, if not in writing (eg., in an electronic medium such as magnetic tape or computer disc), in a form which is readily accessible and convertible into writing in English. [Subclause 28(2)]
6.16 The records must be retained for 5 years. The 5 year period runs from the day on which the records were prepared or obtained, or from when the transactions or acts to which those records relate were completed, whichever is the later. [Subclause 28(3)]
6.17 An employer does not have to keep records if the Commissioner notifies the employer that it is not required, or if the employer is a company that has gone into liquidation and has been dissolved. [Subclause 28(4)]
6.18 The maximum penalty on conviction for failure to comply with the record keeping requirements is a fine of not more than 300 penalty units. [Subclause 28(5)]
Application of the Criminal Code
6.19 Chapter 2 of the Criminal Code applies to offences against this Act. [Clause 29]
6.20 The Bill provides that the Governor-General may make regulations for the purposes of the Act. [Clause 30]
Chapter 7 Interpretation
7.1 Clause 31 defines a number of terms used in the Bill. Except where the definitions are self explanatory, the relevant terms are explained in detail in the explanation of the operative provisions.